John Westergaard, 72, Dies; Founder of Mutual Fund

By MARY WILLIAMS WALSH

Published: February 10, 2003

John Westergaard, a stock picker who built his career on the belief that small companies could richly reward investors who went looking for them, died on Jan. 31 at Calvary Hospice in the Bronx. He was 72.

The cause was prostate cancer, said his son, Emile Westergaard.

In addition to spending more than 40 years prospecting for undiscovered small company stocks, Mr. Westergaard served as treasurer for Daniel Patrick Moynihan from the earliest days of his political career through four Senate campaigns.

Mr. Westergaard started on Wall Street as an analyst for Standard & Poor's, the securities rating service, but in 1960 he opened a research firm with a friend, William Prime. Their company, Equity Research Associates, offered analytical services to small brokerage firms that could not afford research departments.

The financial services industry was not consolidated then as it is today, and with hundreds of firms vying for business, few could afford to assign an analyst to researching small companies full time.

Equity Research Associates was eventually acquired by Ladenburg, Thalmann & Company, a brokerage firm.

In the 1980's, Mr. Westergaard founded the Westergaard Fund, a mutual fund that tried to carry out his ideas about finding emerging companies and investing shareholders' money in them. But the results were disappointing. Stocks of small companies generally lagged the market during the bull market of the early and mid-1980's, then crashed harder than the rest of the market in October 1987. Mr. Westergaard closed the fund that November.

He continued to publish research, however, first mailing his newsletter to subscribers, and later faxing it. His descriptions of small companies were still able to move stock prices and trading volume.

As Mr. Westergaard's publishing business grew, he eventually took it to the Internet, starting a Web site devoted to small company stocks. He also was the host of an investment radio show, ''Johnny Dotcom's Journal,'' where he interviewed executives of fledgling companies, and he offered a service to companies in which he tried to monitor electronic rumor mongers and to counteract the stories they spread.

Blending these various lines of work proved problematic. In 1997, Mr. Westergaard wound up in a heated online battle with a mysterious chat room visitor called Pluvia, who was leaving negative electronic postings about a financially troubled company Mr. Westergaard represented, Premier Laser.

Mr. Westergaard posted a $5,000 reward for Pluvia's identity, touching off an online debate about free speech, the right to remain anonymous, and the propriety of Mr. Westergaard's strategy, which called for companies to pay him fees for disseminating information about their prospects.

This came to the attention of the Securities and Exchange Commission, which in 2000 filed civil fraud charges against Mr. Westergaard. The S.E.C. said that Mr. Westergaard ought to have made it more clear to his readers that the companies he was writing about were paying him. The complaint was one of many that the agency filed against online stock tipsters, but it stood out because of the way Mr. Westergaard chose to fight it.

Instead of agreeing to a fine or temporary suspension, Mr. Westergaard wrote a letter to Arthur Levitt, chairman of the S.E.C. at the time, saying that he was terminally ill with cancer and that the S.E.C. had ruined him. Word that the agency was investigating his business had leaked as he was about to enter a financing round, Mr. Westergaard said, and the scrutiny had scared potential lenders away. He had had to lay off his research staff and close the business, he said, and because he held 47 percent of the equity, he was destitute.

Amid the publicity that followed, a former United States attorney for the Southern District of New York, Paul Curran, stepped in and represented Mr. Westergaard for free. The case was settled in October 2001 with the S.E.C. dropping the fraud charges and pursuing only a charge that Mr. Westergaard had violated an anti-touting disclosure provision. Mr. Westergaard neither admitted nor denied wrongdoing, although he said he did not commit fraud.

A judge said no civil fine was imposed because of Mr. Westergaard's financial condition.

Mr. Westergaard later created a Web site where he hoped other people unhappy about their dealings with the S.E.C. could communicate.

Mr. Westergaard was born Johannes Westergaard, to immigrants from Norway, and was raised on Long Island. He became interested in Democratic Party politics while studying at Williams College in the early 1950's, and ran unsuccessfully for the New York State Senate. He attracted attention to one campaign issue, the dating of milk containers, by leading a cow through Wall Street.

Later, after meeting Mr. Moynihan at the Samuel J. Tilden Democratic Club, Mr. Westergaard agreed to serve as his campaign treasurer when he ran for New York City Council president. Mr. Moynihan lost that race but the two men remained friends, and in 1976 Mr. Westergaard became treasurer of Mr. Moynihan's first successful Senate race.

In addition to Emile, Mr. Westergaard is survived by three other children, Cathrine and Kermit, owners of the Stinger bar in Brooklyn; and Elizabeth, a musician in California. He is also survived by three grandchildren.